The dismantling of three years of COVID curbs this week sparked a rally in the shares of liquor producer Kweichow Moutai Co and China Southern Airlines, seen likely to benefit from potential revenge consumption.

Since hopes for a policy shift began emerging in November, the Hang Seng Index and MSCI China have surged more than 30%, while the CSI 300 jumped over 10%, after double-digit losses for most of the year.

Providers of death care services, including Hong Kong-listed Fu Shou Yuan International Group, China's biggest cemetery operator and funeral service provider, have also drawn investors.

The abrupt easing in regulations means "the number of critically ill, and deaths will creep up over time," boosting demand for medical and death care services, said Yin Peixin, hedge fund manager at Shanghai Jianlong Asset Management Co, who expects a big wave of outbreaks early next year.

The panic over spreading infections has fired up stocks of cough medicines, flu drugs and antigen test kit makers.

Shijiazhuang Yiling Pharmaceutical Co Ltd, a seller of anti-cold drugs, saw its share price double in a little over a month, while shares of Guangzhou Wondfo Biotech, which produces testing reagents, rose to a seven-month high.

The positioning for both the bright and dark side of China's COVID pivot reflects growing concerns from investors surprised by the rapid policy change, especially as COVID vaccination rates among the elderly remain relatively low.

The Chinese economy has sagged this year with a Reuters poll forecasting growth of 3.2%, but some analysts expect growth to rebound to 4-5% next year. A spike in infections, a slowly recovering property market and slumping global growth, however, remain risks to the outlook.

"We are trying to work out who will be real beneficiaries...we think reopening will benefit parts of the economy, but not the entire economy," said Andrew Swan, head of Asia (ex-Japan) equities at Man GLG, who changed his view on China in the third quarter.

While Swan is not convinced there will be a big revival in consumption, the global hedge fund is looking to add exposure to China on the long side.

"The U.S. and other markets gave a lot of income support during lockdowns, but there has been no income support in China at the household level."

Florian Neto, head of investment, Hong Kong & Taiwan and head of multi asset, Asia at French asset manager Amundi, said he, too, is turning bullish on China recently, and has been adding positions.

"Initially we were cautious on China. Over the last 10 days, we got more signs of definitive easing of dynamic zero policy," Neto told Reuters.

"But we still think that the way China can flatten the curve of new COVID cases without doubling down on tightening looks quite challenging."

Neto said that health care and medical equipment stocks are potentially short-term plays as "you can see an increase in the number of inpatient, outpatient."

For long-term plays, he prefers consumer, insurance and internet stocks, which will benefit from an eventual economic reopening.

Citic Securities sees demand for burial services, forecasting business recovery for Fu Shou Yuan, which operates cemeteries in 46 cities across China.

In its initial coverage of the company, Zheshang Securities forecast Fu Shou Yuan's revenue would jump 25% in 2023, compared with 0.7% this year, citing changes in COVID rules.

Fu Shou Yuan shares jumped more than 6% this week to one-year highs, while shares of Fortune Ng Fung Food (Hebei) Co, which offers both meat processing, and death care services, also rose sharply.

Morgan Stanley Chief China economist Robin Xing said China's economy may remain sluggish for another quarter or two, but growth will pick up after Spring.

"After short-term pains, life will come back to normal next year," Xing said, following the Wall Street bank's upgrade of Chinese equities earlier this week.

(Editing by Jacqueline Wong)

By Samuel Shen and Summer Zhen